Micro Port

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)

Interim Report 2010

Designed and Printed:

Contents

Corporate Information Financial Highlights Management Discussion and Analysis Auditors Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Interim Financial Statements

2 3 4 21 23

24 25 27

28 29

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Corporate InformationDIRECTORSExecutive Directors Dr. Zhaohua Chang Ms. Yan Zhang Mr. Hongbin Sun Mr. Qiyi Luo Non-Executive Directors Mr. Norihiro Ashida Mr. Hiroshi Shirafuji Mr. Xiaolong Liu Independent Non-Executive Directors Mr. Zezhao Hua Mr. Jonathan H. Chou Dr. Guoen Liu

REGISTERED OFFICEPO Box 309, Ugland House Grand Cayman, KY11104 Cayman Islands

PRINCIPAL PLACE OF BUSINESS AND HEAD OFFICE IN THE PRC501 Newton Road Zhangjiang Hi-Tech Park Shanghai 201203 Peoples Republic of China

PLACE OF BUSINESS IN HONG KONGLevel 28 Three Pacic Place 1 Queens Road East Hong Kong

JOINT COMPANY SECRETARIESMs. Yee Har Susan Lo, FCS (PE), FCIS Ms. Man Yee Chu, ACS, ACIS

AUDITORSKPMG

COMPLIANCE ADVISORTC Capital Asia Limited

AUTHORIZED REPRESENTATIVESDr. Zhaohua Chang Ms. Yee Har Susan Lo

LEGAL ADVISERRopes & Gray

AUDIT COMMITTEEMr. Jonathan H. Chou (Chairman of the Audit Committee) Mr. Norihiro Ashida Mr. Zezhao Hua

SHARE REGISTRAR IN HONG KONGComputershare Hong Kong Investor Services Limited Shops 17121716 17th Floor, Hopewell Centre 183 Queens Road East Wanchai Hong Kong

REMUNERATION COMMITTEEDr. Zhaohua Chang (Chairman of the Remuneration Committee) Mr. Jonathan H. Chou Dr. Guoen Liu

COMPANY WEBSITEwww.microport.com.cn

PRINCIPAL BANKERSChina Construction Bank Corporation Shanghai Pudong Branch Bank of China Limited Shanghai Zhangjiang Sub-Branch China CITIC Bank Shanghai Zhangjiang Sub-Branch Shanghai Pudong Development Bank Zhangjiang Sub-Branch

NOMINATION COMMITTEEMr. Xiaolong Liu (Chairman of the Nomination Committee) Dr. Guoen Liu Mr. Zezhao Hua

2MICROPORT SCIENTIFIC CORPORATION

Financial HighlightsThe shares of MicroPort Scientic Corporation (the Company) were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange) on September 24, 2010. The board (the Board) of directors (the Directors) of the Company is pleased to announce the consolidated results of the Company and its subsidiaries (collectively the Group) for the six months ended June 30, 2010 together with the comparative amounts for the corresponding period in 2009. Unless the context requires otherwise, capitalized terms used in this interim report shall have the same meanings set out in the prospectus (the Prospectus) of the Company dated September 13, 2010.For the six month ended June 30, 2010 in RMB million (audited) Revenue Gross prot Prot for the period Earnings per share* Basic (RMB) Diluted (RMB) 375.7 326.2 149.7 0.13 0.13 2009 in RMB million (unaudited) 292.0 253.7 107.6 0.10 0.09 28.7 28.6 39.1 30.0 44.4 Change %

*

The calculation of the earnings per share information has taken into account the 10-for-1 share split of the Companys ordinary shares took place on the listing of the Companys shares on September 24, 2010.

32010 INTERIM REPORT

Management Discussion and AnalysisBUSINESS OVERVIEWWe are a leading developer, manufacturer and marketer of medical devices in China in terms of the number of stents implanted, focusing primarily on minimally invasive interventional products for the treatment of vascular diseases and disorders. We currently offer 18 products including cardiovascular and other vascular devices, as well as an electrophysiology and a diabetes device. Our principal product is Firebird 2, our second generation drug-eluting cobalt-chromium stent. Both Firebird 2 and its predecessor, Firebird, have been the leading drug-eluting stents in China in terms of the number of stents implanted in 2007, 2008 and 2009. We are also developing a range of electrophysiology and orthopedic devices and other medical devices. We use a combination of our own sales and marketing teams and a network of independent distributors to market and sell our products in China. Our highly trained sales and marketing teams market our medical devices directly to hospitals through regular visits to interventional cardiologists, radiologists, vascular surgeons and other medical professionals, sponsorship of conferences, seminars and physician education programs, and other activities including regular training for newer products. Our independent distributors, together with our own sales and marketing teams, provide us with nationwide coverage of the China market. In addition, we export our products outside of China through our network of overseas distributors to more than 20 countries in the Asia Pacic region (excluding China), South America and Europe. International sales accounted for 7.5% of our revenue for the six months ended June 30, 2010. For the six months ended June 30, 2009 and 2010, we had revenue of RMB292.0 million and RMB375.7 million, respectively, representing an increase of 28.7%. There are a number of factors which affect our nancial condition and results of operation, including (i) government price controls, (ii) industry competition, (iii) growth of the medical device market in China, in particular for vascular devices, (iv) sales, marketing and distribution, (v) our ability to introduce new products and technologies and (vi) taxes and incentives. The following discussion is based on, and should be read in conjunction with, the nancial information and the notes thereto included elsewhere in this interim report.

RESULTS OF OPERATIONRevenue Revenue increased by 28.7% from RMB292.0 million in the six months ended June 30, 2009 to RMB375.7 million in the six months ended June 30, 2010. The increase was primarily due to an increase in our revenue from drug eluting stents. We did not generate any revenue from our orthopedic device business during the six months ended June 30, 2009 and 2010 as that business has been, and currently remains, in research and development stage.


Management Discussion and AnalysisRevenue from vascular device business Revenue from sales of drug eluting stents increased by 26.8% from RMB258.3 million in the six months ended June 30, 2009 to RMB327.4 million in the six months ended June 30, 2010. The increase was primarily due to an increase in the sales volume of Firebird 2. We believe that the increase in sales volume of Firebird 2 primarily resulted from (i) the overall growth of the market for drug-eluting stents in China, and (ii) the increasing recognition of the quality and performance of Firebird 2 in the medical community and among patients. Revenue from sales of TAA/AAA stent grafts increased by 58.1% from RMB14.8 million in the six months ended June 30, 2009 to RMB23.4 million in the six months ended June 30, 2010. The increase was primarily due to the increases in sales volume of our TAA stent graft, Hercules T, and AAA stent graft, Hercules B. The increases in sales volume of Hercules T and Hercules B primarily resulted from (i) the overall growth of the market for TAA/AAA stent grafts, and (ii) the commercial launch of Hercules B in September 2009. Revenue from sales of bare-metal stents decreased by 11.0% from RMB7.3 million in the six months ended June 30, 2009 to RMB6.5 million in the six months ended June 30, 2010. The decrease was primarily due to a decrease in the selling price of our primary bare-metal stent, Mustang, in the international markets. Revenue from sales of other vascular device products increased by 38.9% from RMB10.8 million in the six months ended June 30, 2009 to RMB15.0 million in the six months ended June 30, 2010. The increase was primarily due to increases in the sales volume of our intracranial stent, Apollo, and our operational stent graft, Cronus. The increases in sales volume of Apollo and Cronus was primarily resulted from growth in the market demand for such products. Revenue from diabetes device business Revenue generated from our diabetes device business increased signicantly from RMB0.8 million in the six months ended June 30, 2009 to RMB3.3 million in the six months ended June 30, 2010. The increase was primarily due to an increase in the sales volume of our insulin pump, La Fenice. The increase in sales volume of La Fenice primarily resulted from our further enhanced sales and marketing team and increased sales and marketing efforts in the six months ended June 30, 2010. Cost of sales Cost of sales increased by 28.6% from RMB38.4 million in the six months ended June 30, 2009 to RMB49.4 million in the six months ended June 30, 2010, primarily as a result of increased sales volume.


Management Discussion and AnalysisGross prot As a result of the foregoing factors, gross prot increased by 28.6% from RMB253.7 million in the six months ended June 30, 2009 to RMB326.2 million in the six months ended June 30, 2010, and gross prot margin remained relatively stable in the six months ended June 30, 2009 and 2010. Other revenue Other revenue decreased by 71.4% from RMB7.7 million in the six months ended June 30, 2009 to RMB2.2 million in the six months ended June 30, 2010. The decrease was primarily due to a (i) RMB2.3 million decrease in interest income from bank deposits primarily as a result of a decrease in interest rates, and (ii) a RMB3.1 million decrease in government grant income. Other net income We had other net income of RMB1.2 million in the six months ended June 30, 2010, as compared to other net loss of RMB0.2 million in the six months ended June 30, 2009. This was primarily due to net foreign exchange gain of RMB1.2 million in the six months ended June 30, 2010, as compared to net foreign exchange loss of RMB0.2 million in the six months ended June 30, 2009. Research and development costs Research and development costs increased by 29.5% from RMB38.0 million in the six months ended June 30, 2009 to RMB49.2 million in the six months ended June 30, 2010. The increase was primarily due to (i) a RMB7.1 million increase in salaries, bonuses and related expenses for personnel engaged in research and development resulting from an increase in the number of our research and development personnel and an increase in salaries and (ii) a RMB4.3 million increase in purchases of supplies and materials used in connection with our increased research and development efforts. Sales and marketing costs Sales and marketing costs increased by 21.3% from RMB44.6 million in the six months ended June 30, 2009 to RMB54.1 million in the six months ended June 30, 2010. The increase was primarily due to (i) a RMB4.0 million increase in salaries, bonuses and related expenses for personnel engaged in sales and marketing resulting from an increase in the number of our sales and marketing personnel and an increase in salaries and (ii) a RMB5.5 million increase in travelling expenses as a result of increased attendance at conferences and seminars to promote our products.


Management Discussion and AnalysisAdministrative expenses Administrative expenses increased by 20.5% from RMB21.5 million in the six months ended June 30, 2009 to RMB25.9 million in the six months ended June 30, 2010. The increase was primarily due to (i) a RMB1.2 million increase in salaries, bonuses and related expenses for administrative personnel and management resulting from an increase in the number of our administrative personnel and management and an increase in salaries and (ii) RMB1.2 million for the purchase of medical reference materials. Other operating costs Other operating costs increased signicantly from RMB0.4 million in the six months ended June 30, 2009 to RMB11.4 million in the six months ended June 30, 2010. The increase was primarily due to the fact that a portion of listing expenses in connection with the listing of our shares on The Stock Exchange of Hong Kong Limited amounting to RMB10.0 million is charged to the consolidated income statement during the six months ended June 30, 2010. Finance costs Finance costs remained relatively stable in the six months ended June 30, 2009 and 2010. Income tax Income tax decreased by 24.3% from RMB38.2 million in the six months ended June 30, 2009 to RMB28.9 million in the six months ended June 30, 2010. The decrease was primarily due to a decrease in withholding tax on retained earnings of our principal operating subsidiary, MicroPort Medical (Shanghai) Co., Ltd. Our effective tax rate decreased from 26.2% in the six months ended June 30, 2009 to 16.2% in the six months ended June 30, 2010. Prot for the period As a result of the foregoing factors, prot for the period increased by 39.1% from RMB107.6 million in the six months ended June 30, 2009 to RMB149.7 million in the six months ended June 30, 2010, and net prot margin increased from 36.8% in the six months ended June 30, 2009 to 39.8% in the six months ended June 30, 2010.


Management Discussion and AnalysisLIQUIDITY AND CAPITAL RESOURCESAs of June 30, 2010, we had RMB68.2 million (June 30, 2009: RMB90.2 million) in cash and cash equivalents. Our cash and cash equivalents consist primarily of cash on hand and bank balances which are primarily held in RMB denominated accounts with banks in China. The Boards approach to managing liquidity is to ensure, as far as possible, that it will always have sufcient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Groups reputation. Operating activities Net cash generated from operating activities was RMB86.1 million in the six months ended June 30, 2010 (six months ended June 30, 2009: RM73.5 million), which was primarily attributable to (i) prot before taxation of RMB178.6 million and (ii) an increase in trade and other payables of RMB22.6 million, partially offset by (i) an increase in trade and other receivables of RMB90.6 million, and (ii) payment of PRC income tax of RMB27.8 million. Investing activities Net cash used in investing activities was RMB56.3 million in the six months ended June 30, 2010 (six months ended June 30, 2009: RMB58.8 million), which was primarily attributable to (i) net placement of deposits with banks with original maturities over three months of RMB9.0 million, and (ii) payment for the purchase of xed assets of RMB51.6 million in connection with the construction of a new ofce complex for our headquarters and principal manufacturing facilities and our purchase of a building and machinery. Financing activities Net cash used in nancing activities was RMB51.6 million in the six months ended June 30, 2010 (six months ended June 30, 2009: RMB31.4 million), which was primarily attributable to dividends paid of RMB106.7 million, partially offset by net proceeds from new loans of RMB50.0 million. Borrowings and gearing ratio Total borrowings of the Group as at June 30, 2010 was RMB54.6 million (June 30, 2009: RMB4.6 million) and denominated in RMB and 91.5% of it bears a xed interest rate of 4.779% per annum. The increase is mainly attributable to new short term loan of RMB100.0 million during the six months period ended June 30, 2010, of which RMB50.0 million has been repaid. As at June 30, 2010, the gearing ratio (calculated by dividing total loans and bank borrowings by total equity) of the Group remained at a low level of 0.10 (June 30, 2009: 0.01).


Management Discussion and AnalysisWorking capital Our working capital as of June 30, 2010 was RMB439.0 million (December 31, 2009: RMB369.1 million). Foreign exchange exposure The Groups sales were primarily denominated in RMB. Therefore the Groups exposure to foreign currency exchange risks is negligible and the Board does not expect future currency uctuations to materially impact the Groups operations. During the period under review, the Group recorded exchange gain of RMB1.2 million (June 30, 2009: exchange loss of RMB0.2 million). The Group does not employ any nancial instruments for hedging purposes. Capital expenditure During the period under review, the Groups total capital expenditure amounted to approximately RMB51.6 million, which was used in the acquisition of property, plant and equipment. Charge on assets As at June 30, 2010, the Group had pledged its building held for own use with net book value of RMB29.7 million and deposits with banks of RMB0.7 million for the purpose of securing a loan with carrying value of RMB4.7 million. Contingent liabilities As at June 30, 2010, the Group had no material contingent liabilities.

HUMAN RESOURCESAs at June 30, 2010, the Group employed approximately 1,214 employees (June 30, 2009: 1,023 employees). The Group offered competitive salary package, as well as discretionary bonuses and contribution to social insurance to its employees. A Share Option Scheme (as dened below) has also been adopted for employees of the Group. In order to ensure that the Groups employees remain competitive in the industry, the Company has adopted training schemes for its employees managed by its human resource department.


Management Discussion and AnalysisPROSPECTSWith the listing of the shares of the Company on the Stock Exchange on September 24, 2010 and the receipt of proceeds, net of listing expenses, of approximately HK$1,428.3 million from the Global Offering excluding the Over-allotment Option, the Company has the resources to improve our products and increase our productivity and to bring value to our shareholders. We currently intend to apply those proceeds in the following ways: approximately 50%, or HK$714.1 million, to expand our product offerings, including enhancing our research and development (including conducting clinical trials and obtaining both domestic and international regulatory approvals), with a particular focus on new product lines to diversify our business, as well as acquiring businesses or acquiring or licensing products and technologies that we believe could complement our existing capabilities; in this regard, we expect to invest approximately HK$100 million to nance the ongoing clinical trials of our third generation drug-eluting stent, Firehawk, and ongoing research of our fourth generation drug-eluting stent as well as several other cardiovascular and other vascular products. As at the date of this report, our Directors conrm that our Company has not entered into any agreement nor do we have any denite plans at present in relation to any potential acquisitions of businesses or potential acquisitions or licensing of products and technologies; approximately 25%, or HK$357.1 million, to expand our production facilities, including approximately HK$250.0 million for completion of a new ofce complex for our headquarters and principal manufacturing facilities which is expected to be completed in 2012 and have an estimated annual production capacity of approximately 700,000 to 1,000,000 units of stents and catheters, and purchase of production and testing equipment; approximately 20%, or HK$285.7 million, to expand our sales, marketing and distribution activities in China and worldwide in particular the Asia Pacic region (excluding China) and Europe, including expanding and enhancing our sales, marketing and distribution network by adding more staff and hiring more distributors and performing multi-center post-launch clinical studies on our principal products such as drug-eluting stents, enhancing our brand name and market position and increasing training and education of physicians regarding our products by establishing training and education centers in China and other activities such as promoting public awareness and early detection of chronic diseases and post-procedure patient care and services; and approximately 5%, or HK$71.4 million, to fund working capital and for other general corporate purposes.

On September 26, 2010, the Company announces that the Over-allotment Option has been fully exercised. The additional net proceeds to be received by the Company upon the exercise of the Over-allotment Option are estimated to be approximately HK$221.3 million. The additional net proceeds will be applied in the manner and the proportions stated above.


Management Discussion and AnalysisINTERESTS AND SHORT POSITIONS OF THE DIRECTORS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONSThe Company was listed on the Stock Exchange on September 24, 2010. No disclosure of interests or short positions of any directors and/or chief executives of the Company in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (SFO)) were made to the Company under the provisions of Divisions 7 and 8 of Part XV of the SFO as of June 30, 2010. As extracted from the Prospectus of the Company, on September 24, 2010 upon the Companys Listing, the interests and short positions of the directors and/or chief executive of the Company in any shares, underlying shares and debentures of the Company (taking no account of the shares to be issued pursuant to options which may be granted under the Share Option Scheme (as dened below) or pursuant to the exercise of the Over-allotment Option (as dened in the Prospectus)) or any of its associated corporations (within the meaning of Part XV of the SFO) which require notication pursuant to Divisions 7 and 8 of Part XV of the SFO, or which are required, pursuant to Section 352 of Part XV of the SFO, to be entered in the register kept by the Company, or which are required to be notied to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code) were as follows: 1. Interests and short position in the shares (the Shares) of the CompanyApproximate percentage of interest in the Company immediately after the Global Name of Director/ Chief Executive Dr. Zhaohua Chang Mr. Qiyi Luo Mr. Yimin Xu Ms. Yan Zhang No. of Shares 217,110,000 10,919,550 6,052,260 3,200,000 2 2 Notes 1 Capacity Deemed interest Benecial owner Benecial owner Benecial owner Nature of interest Long position Long position Long position Long position Offering (Note 3) 15.5% 0.8% 0.4% 0.2%


Management Discussion and Analysis2. Interests and short position in the underlying SharesApproximate percentage of interest in the Company immediately No. of Name of Director/ Chief Executive Dr. Zhaohua Chang Ms. Yan Zhang Mr. Qiyi Luo Mr. Hongbin Sun Mr. Yufei Hu Mr. Yimin Xu underlying Shares 10,000,000 4,500,000 2,780,450 4,000,000 3,500,000 1,044,430 Notes 4 4 4 4 4 4 Capacity Benecial owner Benecial owner Benecial owner Benecial owner Benecial owner Benecial owner Nature of interest Long position Long position Long position Long position Long position Long position after the Global Offering (Note 3) 0.71% 0.32% 0.20% 0.28% 0.25% 0.07%

Notes:

(1)

Dr. Zhaohua Chang, our founder and Director, and chairman of our Company, owns 49% equity interest in Shanghai WeTron Capital Corp. which in turn owns 94.19% equity interest in WeTron Capital. To the best knowledge of our Directors and save as disclosed above, the remaining equity interest of WeTron Capital and Shanghai WeTron Capital Corp. are owned by independent third parties to our Company, none of which holds 33% or more in Shanghai WeTron Capital Corp. Dr. Zhaohua Chang is therefore deemed to be interested in the number of Shares held by WeTron Capital.

(2)

Some or all of the relevant Shares are held through special purpose vehicles.

(3)

Assuming the Over-allotment Option is not exercised.

(4)

For further details, please refer to the below section headed Share Option Scheme.

Save as disclosed above, as at September 24, 2010 upon the Companys Listing, none of the directors or chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would be required to be notied to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or which would be required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or otherwise to be notied to the Company and the Stock Exchange pursuant to the Model Code.


Management Discussion and AnalysisINTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN SHARES AND UNDERLYING SHARES OF THE COMPANYThe Company was listed on the Stock Exchange on September 24, 2010. No disclosure of interests or short positions in any shares or underlying shares of the Company were made to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as of June 30, 2010. As extracted from the Prospectus of the Company, on September 24, 2010 upon the Companys Listing, so far as is known to the directors and taking no account of the Shares to be issued pursuant to options which may be granted under the Share Option Scheme (as dened below) or pursuant to the exercise of the Over-allotment Option (as dened in the Prospectus), the following persons (other than the directors or chief executive of the Company), who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company in accordance with the provisions of Divisions 2 and 3 of Part XV of the SFO, or which would be required, pursuant to Section 336 of the SFO, to be entered in the register referred to therein, were as follows: Interests and short position in the SharesPercentage of total number of Name of Substantial Shareholder Otsuka Pharmaceutical WeTron Capital Shanghai Zhangjiang Holdings Shanghai Zhangjiang Investment Shanghai Zhangjiang Industry Shanghai ZJ 278,705,470 7,042,580 3 Interest of controlled Long position corporation Benecial owner Long position 0.5 19.8 9,423,280 3 Benecial owner Long position 0.7 53,398,570 3 Benecial owner Long position 3.8 No. of Shares 468,994,120 217,110,000 215,883,620 Notes 1 2 3 Capacity Benecial owner Benecial owner Benecial owner Nature of interest Long position Long position Long position Shares in issue (%) 33.4 15.5 15.4

Notes

(1)

Otsuka Holdings holds the entire issued share capital of Otsuka Pharmaceutical and therefore, is deemed to be interested in the number of Shares held by Otsuka Pharmaceutical.

(2)

Dr. Zhaohua Chang, our founder, Director and chairman, owns 49% equity interest in Shanghai WeTron Capital Corp. which in turn owns 94.19% equity interest in WeTron Capital. To the best knowledge of our Directors and save as disclosed above, the remaining equity interests of WeTron Capital and Shanghai WeTron Capital Corp. are owned by independent third parties to our Company, none of which holds 33% or more in Shanghai WeTron Capital Corp. Dr. Zhaohua Chang is therefore deemed to be interested in the number of Shares held by WeTron Capital.


Management Discussion and Analysis(3) Each of Shanghai Zhangjiang Industry, Shanghai Zhangjiang Investment and Shanghai Zhangjiang Holdings is a wholly-owned subsidiary of Shanghai ZJ. Each of Shanghai ZJ Holdings Limited and Shanghai Zhangjiang Science and Technology Investment (Hong Kong) Company Limited owns 50% of Shanghai ZJ. Shanghai (Z.J.) Holdings Limited and Shanghai Zhangjiang Science and Technology Investment (Hong Kong) Company Limited are wholly-owned subsidiaries of Shanghai Zhangjiang Haocheng Venture Capital Co., Ltd and Shanghai Zhangjiang Science and Technology Investment Co., respectively. Shanghai Zhangjiang Haocheng Venture Capital Co., Ltd is in turn a wholly-owned subsidiary of Shanghai Zhangjiang Hi-Tech Park Development Co., Ltd which is 53.58% owned by Shanghai Zhangjiang (Group) Co., Ltd. Shanghai Zhangjiang Science and Technology Investment Co. is a wholly owned subsidiary of Shanghai Zhangjiang (Group) Co., Ltd. Shanghai Zhangjiang (Group) Co., Ltd. is wholly-owned by the State-owned Assets Supervision and Administration Commission of the Shanghai Pudong New Area Peoples Government. As such, each of ZJ Holdings Limited, Shanghai Zhangjiang Science and Technology Investment (Hong Kong) Company Limited, Shanghai Zhangjiang Haocheng Venture Capital Co., Ltd, Shanghai Zhangjiang Hi-Tech Park Development Co., Ltd and Shanghai Zhangjiang (Group) Co., Ltd is deemed to be interested in the number of Shares held by Shanghai Zhangjiang Industry, Shanghai Zhangjiang Investment, Shanghai ZJ and Shanghai Zhangjiang Holdings. Shanghai ZJ is deemed to be interested in the number of Shares held by Shanghai Zhangjiang Industry, Shanghai Zhangjiang Investment and Shanghai Zhangjiang Holdings.

Save as disclosed above, and as at September 24, 2010 upon the Companys Listing, the directors of the Company were not aware of any person (who were not directors or chief executive of the Company) who had interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which would be required, pursuant to Section 336 of the SFO, to be entered in the register referred to therein.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESSince the Company was only listed on the Main Board of the Stock Exchange on September 24, 2010, during the period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Companys listed securities.

MATERIAL ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIESDuring the six months ended June 30, 2010, there was no acquisition and disposal of subsidiaries and associated companies by the Company.

SHARE OPTION SCHEMEOn February 20, 2004, MP Cayman, the intermediate holding company of MP Shanghai prior to the Reorganization completed on December 31, 2006, adopted the 2004 Stock Option Plan (the 2004 Option Plan) pursuant to which MP Cayman may grant up to 10,261,030 share options to the employees, executives and outside consultants of MP Shanghai.


Management Discussion and AnalysisDuring 2004 and 2005, MP Cayman granted a total of 10,261,030 share options to the executives, employees and outside consultants. The grantees under the 2004 Option Plan became the shareholders of MP Cayman and later become the shareholders of the Company upon the completion of the Reorganization when the ordinary shares of MP Cayman were exchanged for the Companys ordinary shares on a one for one basis. On January 10, 2007, the Company agreed to assume the obligation of all outstanding and unvested share options of MP Cayman under the 2004 Option Plan. The assumption of share options was considered as a modication to the 2004 Option Plan (the 2004 Modied Plan). On August 26, 2006, the Company adopted the 2006 Share Incentive Plan (the 2006 Incentive Plan), in which the board of directors authorized, at their discretion, the issuance of an aggregate of up to 6,009,157 share options to the executives, employees and outside consultants of MP Shanghai. The 2006 Incentive Plan is subject to adjustment for a share split, or any future share dividend or other similar change in the ordinary shares for the capital structure. Each option gives the holder the right to subscribe for one ordinary share in the Company. On September 3, 2010, the Company amended the 2006 Incentive Plan such that the maximum aggregate number of shares which may be issued was increased to 6,509,157. The number of Shares covered by each outstanding Award and authorized for issuance under the 2006 Incentive Plan would also be proportionately adjusted as a result of the 10-for-1 share split. Details of the exercise price and vesting of the options in relation to the 2004 Option Plan, the 2004 Modied Plan and the 2006 Incentive Plan (collectively, the Pre-IPO Share Option Schemes) are contained in Note 24 to the interim nancial statements.


The following tables are extracted from the Prospectus of the Company:

Particulars of the options granted under the Pre-IPO Share Option Schemes are as follows (which does not take into account the effect of the 10-for-1 share split which will take place immediately prior to the Global Offering):

Pre-IPO Share Option Schemes:

Name of grantee

Position

No. of Shares subject to the Exercise Price outstanding options (US$)

Weighted average exercise price (in US$)

% of issued share capital immediately after completion of the Global Current Offering shareholding (Note 1) (Note 15) Number of options that become exercisable in year 2006 Number of options that become exercisable in year 2007 Number of options that become exercisable in year 2008 Number of options that become exercisable in year 2009 Number of options that become exercisable in year 2010 Number of options that become exercisable in year 2011 Number of options that become exercisable in year 2012 Number of options that become exercisable in year 2013 Number of options that become exercisable in year 2014

Number of options that become exercisable in year 2015

Directors and chief executive ofcers of the Company and its subsidiaries Zhaohua Chang Executive Director of the 3.062 1,000,000 Company, and a Director (Note 2) of MP Shanghai 3.062 0.68 21,711,000* 250,000 250,000 450,000** (Note 3) 3.062 0.31 320,000** 15,000 42,500 42,500 87,500 87,500

250,000

250,000

1628,045** 250,000** (Note 4) 3.031 0.19 1,091,955 7,012 7,011 7,011 400,000 (Note 5) 3.062 0.27 None 350,000** (Note 6) 3.062 0.24 None 62,500 62,500 4,443 100,000 (Note 7) 3.049 0.07 605,226 which includes 59,669**

Yan Zhang

President and executive Director of the Company and MP Shanghai; executive Director of MP Lifesciences Shanghai

3.062

87,500

87,500

Management Discussion and Analysis

MICROPORT SCIENTIFIC CORPORATION 69,511 62,500 100,000 100,000 87,500 87,500 29,443 25,000

Qiyi Luo

Executive Director of the Company and Chief Technology Ofcer of the Company and MP Shanghai

2.75 3.062

62,500

62,500

Hongbin Sun

Chief Financial Ofcer and executive Director of the Company and MP Shanghai

3.062

100,000

100,000

Yufei Hu

Executive Director of MP Orthopedics, and Vice President of Finance of the Company and MP Shanghai

3.062

25,000

25,000

Yimin Xu

Executive Director of MP B.V. and Vice President of QA & Regulatory of MP Shanghai

2.75 3.062

25,000

25,000

Name of grantee 3,739 100,000 (Note 8) 3.051 0.07 461,261 935 935 935 25,934 25,000 25,000 25,000

Position



% of issued share capital immediately after completion of the Global Current Offering shareholding (Note 1) (Note 15) Number of options that become exercisable in year 2006 Number of options that become exercisable in year 2007 Number of options that become exercisable in year 2008 Number of options that become exercisable in year 2009 Number of options that become exercisable in year 2010 Number of options that become exercisable in year 2011 Number of options that become exercisable in year 2012 Number of options that become exercisable in year 2013 Number of options that become exercisable in year 2014 Number of options that become exercisable in year 2015

Daozhi Liu

Vice President of Research Center of MP Shanghai and General Manager of MP Orthopedics

2.75 3.062

Senior management of the Company and its subsidiaries Philip Li Wang Chief Operating Ofcer of the Company and MP Shanghai 63,704** 250,000** (Note 9) 2.999 0.21 640,000 15,926 15,926 15,926 78,426 62,500 62,500 500,000 (Note 10) 3.062 0.34 None 80,000 105,000 105,000 105,000

2.75 3.062

62,500

Kongrong Karl Pan

Vice President of Manufacturing and Operation of the Company and MP Shanghai 2,569 100,000 (Note 11) 208,073** 214,873** (Note 12) 2.909 0.29 162,812 which includes 20,885 ** 52,019 52,018 52,018 105,737 3.054 0.07 547,431 which includes 150,000** 27,569 25,000

3.062

105,000

Jie Zhang

Senior Vice President of General Administration of MP Shanghai

2.75 3.062

25,000

25,000

17


2010 INTERIM REPORT

Bo Peng

Chief Marketing Ofce of the Company and MP Shanghai

2.75 3.062

53,718

53,718

53,718

Name of grantee 250,000 (Note 13) 3.062 0.17 None 37,500 62,500 62,500 62,500 25,000

Position



% of issued share capital immediately after completion of the Global Current Offering shareholding (Note 1) (Note 15) Number of options that become exercisable in year 2006 Number of options that become exercisable in year 2007 Number of options that become exercisable in year 2008 Number of options that become exercisable in year 2009 Number of options that become exercisable in year 2010 Number of options that become exercisable in year 2011 Number of options that become exercisable in year 2012 Number of options that become exercisable in year 2013 Number of options that become exercisable in year 2014 Number of options that become exercisable in year 2015

Xiaomin Huang

General Manager of MP Lifesciences Shanghai

3.062

N/A 1,268,824 381,868 3.062 0.26 10,000 10,000 22,500 146,868 65,000 55,000 2.780 0.86 1,146,630 52,112 19,091 54,983 50,057 87,598 337,314 262,022 219,875 150,774 42,500

0.09 to 3.062

1,077,892

0.577

0.73

None

25,000

25,000

25,000

25,000

940,392

12,500

12,500

12,500

35,000 30,000

N/A

N/A

3.062

N/A

2.75 to 4.25

459,609

3.001

0.31

24,716

5,863

10,433

15,433

37,933

100,433

100,433

91,865

72,500

18427,347 2.750 0.29 27,396 13,228 34,550 24,624 27,165 6,622,162 4.50

Other grantees (Note 14) Consultants in aggregate (17) Other employees in aggregate (406) 2 employees being granted between 50,001 to 200,000 options 12 employees being granted between 10,001 to 50,000 options 392 employees being granted less than 10,000 options 90,013 96,589 73,010 35,774

N/A

2.75

5,000


MICROPORT SCIENTIFIC CORPORATION

Total number of Shares

Total % of issued share capital immediately after completion of the Global Offering

* **

indirect shareholding through WeTron Capital China Limited. indicates the relevant interest are held through a BVI special purpose vehicle.

Management Discussion and AnalysisNote: (1) (2) Assuming that all granted options under the Pre-IPO Share Option Schemes have been fully exercised. All of the 1,000,000 outstanding options were granted to Zhaohua Chang on July 9, 2010 and the exercise period is from July 9, 2011 to July 8, 2020. There is only one exercise price for the outstanding options held by Zhaohua Chang, being US$3.062. 100,000 outstanding options were granted to Yan Zhang on July 25, 2008 and the exercise period is from July 25, 2009 to July 24, 2018. 250,000 outstanding options were granted to Yan Zhang on July 9, 2010 and the exercise period is from July 9, 2011 to July 8, 2020. The remaining 100,000 outstanding options were granted to Yan Zhang on August 9, 2010 and the exercise period is from August 9, 2011 to August 8, 2020. There is only one exercise price for the outstanding options held by Yan Zhang, being US$3.062. 28,045 outstanding options were granted to Qiyi Luo on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. 250,000 outstanding options were granted to Qiyi Luo on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. All the outstanding options were granted to Hongbin Sun on August 9, 2010. The exercise period is from August 9, 2011 to August 8, 2020. The exercise price is US$3.062. 250,000 outstanding options were granted to Yufei Hu on December 1, 2008 and the exercise period is from December 1, 2009 to November 30, 2018. 100,000 outstanding options were granted to Yufei Hu on July 9, 2010 and the exercise period is from July 9, 2011 to July 8, 2020. The exercise price is US$3.062. 4,443 outstanding options were granted to Yimin Xu on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. 100,000 outstanding options were granted to Yimin Xu on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. The 3,739 outstanding options were granted to Daozhi Liu on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. The 100,000 outstanding options were granted to Daozhi Liu on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. The 63,704 outstanding options were granted to Philip Li Wang on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. The 250,000 outstanding options were granted to Philip Li Wang on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. The 400,000 outstanding options were granted to Kongrong Karl Pan on October 21, 2009 and the exercise period is from October 21, 2010 to October 20, 2019. The remaining 100,000 outstanding options were granted to him on July 9, 2010 and the exercise period is from July 9, 2011 to July 8, 2020. The exercise price is US$3.062. The 2,569 outstanding options were granted to Jie Zhang on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. The 100,000 outstanding options were granted to Jie Zhang on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. The 208,073 outstanding options were granted to Bo Peng on March 2, 2007, the exercise period is from March 2, 2008 to March 1, 2017, and the exercise price is US$2.75. The 214,873 were granted on July 9, 2010, the exercise period is from July 9, 2011 to July 8, 2020, and the exercise price is US$3.062. The 150,000 outstanding options were granted to Xiaomin Huang on December 1, 2008 and the exercise period is from December 1, 2009 to November 30, 2018. The remaining 100,000 outstanding options were granted to Xiaomin Huang on July 9, 2010 and the exercise period is from July 9, 2010 to July 8, 2020. The exercise price is US$3.062. The table sets out below shows the grant period and the exercise prices of our grantees, including grantees who are not our Directors and senior management. Grant Period 1. 2. 3. 4. prior to June 2006 March 2007 to May 2007 May 2007 to current February 2009 Exercise Price (US$) nil to 1.260 2.750 3.062 4.250

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

Other than the exercise price, no grantee under our Pre-IPO Share Option Schemes is required to pay any kind of consideration for his or her options. Our employees normally receive options either on their rst day of joining our Group, or pursuant to resolutions passed by our Board of Directors or our executive committee. The vesting period normally ranges from four to ve years and the exercise period typically expires ten years after the date of grant, and starts from the end of the rst year of the vesting period. As such, the exercise periods for the options held by our employees vary depending on when they join the Group. (15) The number of Shares held by the relevant grantee upon exercise of the options previously granted to him or her.


Management Discussion and AnalysisCOMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICESince the Company was only listed on the Stock Exchange on September 24, 2010, the Code on Corporate Governance Practices contained in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules) (the Corporate Governance Code) was not applicable to the Company for the six months ended June 30, 2010. However, none of the Directors is aware of any information that would reasonably indicate that the Company or any of its directors is not or was not, for any part of the period between the date of listing of the Company and the date of this report in due compliance with the code provisions of the Corporate Governance Code.

CODE OF CONDUCT REGARDING SECURITIES TRANSACTIONS BY DIRECTORSThe Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules as its own code of conduct for dealing in securities of the Company by the Directors (the Model Code). Having made specic enquiry of all Directors, all Directors conrmed that they have complied with the required standard set out in the Model Code since the Companys listing.

AUDIT COMMITTEEThe audit committee of the Company has reviewed with the management of the Company the accounting principles and practices adopted by the Group and discussed the auditing, internal control and nancial reporting matters including the review of the interim report of the Group for the six months ended June 30, 2010. By Order of the Board MicroPort Scientic Corporation Dr. Zhaohua Chang Chairman Shanghai, China September 29, 2010


Auditors Report

Independent auditors report to the board of directors of MicroPort Scientic Corporation (Incorporated in the Cayman Islands with limited liability) We have audited the consolidated interim nancial statements of MicroPort Scientic Corporation (the Company) and its subsidiaries (hereinafter collectively referred to as the Group) set out on pages 23 to 110, which comprise the consolidated and company balance sheets as at June 30, 2010, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash ows for the six months then ended and a summary of signicant accounting policies and other explanatory notes.

DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe directors of the Company are responsible for the preparation and the true and fair presentation of these nancial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certied Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS RESPONSIBILITYOur responsibility is to express an opinion on these consolidated nancial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certied Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the nancial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and true and fair presentation of the nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the nancial statements. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion.


Auditors ReportOPINIONIn our opinion, the consolidated interim nancial statements give a true and fair view of the state of affairs of the Group and of the Company as at June 30, 2010 and of the Groups prot and cash ows for the six months then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

EMPHASIS OF MATTERWithout qualifying our opinion, we draw attention to note 2(b) to the consolidated interim nancial statements which states that the comparative amounts of the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash ows in respect of the six months ended June 30, 2009 and the related notes disclosed in the consolidated interim nancial statements were derived from the Groups management accounts. Those comparative amounts have not been audited and we therefore do not express an audit opinion on them.

KPMG Certied Public Accountants 8th Floor, Princes Building 10 Chater Road Central, Hong Kong September 29, 2010


Consolidated Income StatementFor the six months ended June 30, 2010

Six months ended June 30, 2010 RMB000 Note Revenue Cost of sales Gross prot Other revenue Other net income/(loss) Research and development costs Sales and marketing costs Administrative expenses Other operating costs Prot from operations Finance costs Prot before taxation Income tax Prot for the period 6(a) 6 7(a) 5 5 3, 4 375,677 (49,431) 326,246 2,209 1,161 (49,150) (54,067) (25,862) (11,404) 189,133 (10,518) 178,615 (28,911) 149,704 2009 RMB000 (unaudited) 292,017 (38,360) 253,657 7,701 (163) (38,042) (44,561) (21,504) (426) 156,662 (10,887) 145,775 (38,214) 107,561

Earnings per share Basic (RMB) Diluted (RMB)

11 0.13 0.13 0.10 0.09

The notes on pages 30 to 110 form part of these interim nancial statements.


Consolidated Statement of Comprehensive IncomeFor the six months ended June 30, 2010

Six months ended June 30, 2010 RMB000 Note Prot for the period Other comprehensive income for the period Exchange differences of translation of nancial statements of entities outside the PRC, net of nil tax Total comprehensive income for the period (2,178) 147,526 122 107,683 149,704 2009 RMB000 (unaudited) 107,561



Consolidated Balance SheetAt June 30, 2010

At June 30, 2010 Note Non-current assets Fixed assets Property, plant and equipment Interests in leasehold land held for own use under operating leases 12 12 178,193 37,158 215,351 Intangible assets Prepayments for xed assets Goodwill Deferred tax assets 14 22(b) 13 9,903 27,175 2,105 5,962 260,496 Current assets Inventories Trade and other receivables Deposits with banks Cash and cash equivalents 16 17 18 19 68,989 231,770 202,601 68,201 571,561 Current liabilities Trade and other payables Short term loans Long term loans (current portion) Redeemable convertible preference shares Income tax payable Deferred income 20 21 21 25(c)(ii) 22(a) 23 67,119 50,000 456 90,501 14,872 134 223,082 RMB000

At December 31, 2009 RMB000

156,802 37,548 194,350 10,023 14,412 2,105 6,667 227,557

56,695 143,817 193,595 90,194 484,301

152,260 448 82,262 26,299 142 261,411

Net current assets

348,479

222,890

Total assets less current liabilities

608,975

450,447


Consolidated Balance Sheet continuedAt June 30, 2010

At June 30, 2010 Note Non-current liabilities Long term loans Deferred income Deferred tax liabilities 21 23 22(b) 4,194 26,447 34,804 65,445 RMB000


4,131 23,740 34,883 62,754

NET ASSETS

543,530

387,693

CAPITAL AND RESERVES Share capital Reserves TOTAL EQUITY

25 89 543,441 543,530 89 387,604 387,693

Approved and authorized for issue by the board of directors on September 29, 2010

Zhaohua Chang Chairman

Hongbin Sun Chief Financial Ofcer



Company Balance SheetAt June 30, 2010

At June 30, 2010 Note Non-current assets Investments in subsidiaries Current assets Other receivables Cash and cash equivalents 17 19 7,338 4,811 12,149 Current liabilities Other payables Redeemable convertible preference shares Income tax payable 20 25(c)(ii) 22(a) 33,473 90,501 123,974 Net current liabilities Total assets less current liabilities Non-current liabilities Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves TOTAL EQUITY 25(a) 89 403,120 403,209 22(b) 12,972 403,209 (111,825) 416,181 15 528,006 RMB000


524,566

114,433 4,162 118,595

129,653 82,262 4,754 216,669 (98,074) 426,492

12,972 413,520

89 413,431 413,520

Approved and authorized for issue by the board of directors on September 29, 2010

Zhaohua Chang Chairman

Hongbin Sun Chief Financial Ofcer



Consolidated Statement of Changes in EquityFor the six months ended June 30, 2010 Attributable to equity shareholders of the Company Share-based compensation Statutory Contributed Translation capital general surplus reserve reserve reserve RMB000 RMB000 RMB000 RMB000 Note 25(d)(ii) Note 25(d)(iii) Note 25(d)(iv) Note 25(d)(v) 91,893 11,569 10,263 13,828

Note At January 1, 2009 Changes in equity for the six months ended June 30, 2009 (unaudited): Equity-settled share-based transactions Expiry of share options Total comprehensive income for the period At June 30, 2009 and July 1, 2009 (unaudited) Changes in equity for the six months ended December 31, 2009 (unaudited): Dividends approved in respect of the previous year Equity-settled share-based transactions Shares issued under the share option scheme Expiry of share options Total comprehensive income for the period At December 31, 2009 and January 1, 2010 Changes in equity for the six months ended June 30, 2010: Dividends approved in respect of the previous year Equity-settled share-based transactions Shares issued under the share option scheme Total comprehensive income for the period At June 30, 2010

Share capital RMB000 Note 25(c)(i) 89

Share premium RMB000 Note 25(d)(i) 6,638

Retained earnings RMB000

Total RMB000

273,323

407,603

24(c)

122

3,873 (120)

120 107,561

3,873 107,683

89

6,638

91,893

11,691

14,016

13,828

381,004

519,159

10,260

(91,893)

455

968 (6,249) (1,385)

(123,819) 1,385 78,812

(215,712) 968 4,011 79,267

89

16,898

12,146

7,350

13,828

337,382

387,693

25(b) 24(c) 25(c)(iii)

89

10,923 27,821

(2,178) 9,968

3,440 (3,682) 7,108

13,828

(2,370) 149,704 484,716

(2,370) 3,440 7,241 147,526 543,530



Consolidated Statement of Cash FlowsFor the six months ended June 30, 2010

Note Operating activities Cash generated from operations Tax paid: PRC income tax paid PRC withholding tax paid Non-PRC income tax paid Net cash generated from operating activities Investing activities Payment for the purchase of xed assets Proceeds from sale of xed assets Payment for the purchase of intangible assets Expenditure on development project Placement of deposits with banks with original maturities over three months Uplift of deposits with banks with original maturities over three months Increase in pledged deposits Interest received Net cash used in investing activities Financing activities Proceeds from new loans Repayments of loans Proceeds from shares issued under the share option scheme Interest paid Dividends paid to ordinary shareholders Dividends paid to holder of redeemable convertible preference shares Net cash used in nancing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at end of the period 19(a) 19(b)

Six months ended June 30, 2010 2009 RMB000 RMB000 (unaudited)

125,820 (27,812) (11,884) (16) 86,108

94,979 (21,508) 73,471

(51,617) 7 (248) (200,000) 191,000 (6) 4,547 (56,317)

(13,984) (300) (206,000) 155,000 (10) 6,536 (58,758)

25(c)(iii)

100,000 (50,000) 7,241 (2,208) (104,080) (2,596) (51,643) (21,852) 90,194 (141) 68,201

(21,000) (167) (10,188) (31,355) (16,642) 66,461 (5) 49,814



Notes to the Consolidated Interim Financial StatementsFor the six months ended June 30, 2010 (Expressed in Renminbi unless otherwise indicated)

1

GENERAL INFORMATIONMicroPort Scientic Corporation (the Company) was incorporated in the Cayman Islands on July 14, 2006 as an exempted company with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The principal business of the Company and its subsidiaries are the manufacturing and distribution of medical devices in the Peoples Republic of China (the PRC). The details of the subsidiaries directly or indirectly owned by the Company are set out in note 15. The Companys shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange) on September 24, 2010.

2

SIGNIFICANT ACCOUNTING POLICIES(a) Statement of compliance These interim nancial statements have been prepared in accordance with Hong Kong Accounting Standard 34, Interim nance reporting, and all applicable Hong Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued by the Hong Kong Institute of Certied Public Accountants (HKICPA), and accounting principles generally accepted in Hong Kong. These nancial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange and disclosure requirements of the Hong Kong Companies Ordinance. The HKICPA has issued certain new and revised HKFRSs that are rst effective or available for early adoption for the current accounting period of the Group. For the purposes of preparing these nancial statements, the Group has adopted all these new and revised HKFRSs throughout the periods presented, except for any new or revised HKFRSs that are not yet effective for accounting period beginning on January 1, 2010. The interim nancial statements have been prepared in accordance with the same accounting policies adopted in the Accountants Report in Appendix I to the Companys prospectus dated September 13, 2010. The revised and new accounting standards and interpretations issued but not yet effective for the accounting period beginning on January 1, 2010, which have not adopted by the Group are set out in note 30. A summary of the signicant accounting policies adopted and consistently applied by the Group in the preparation of these nancial statements is set out below.



2

SIGNIFICANT ACCOUNTING POLICIES continued(b) Basis of preparation and presentation of the interim nancial statements The comparatives of the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash ows in respect of the six months ended June 30, 2009 and the related notes disclosed in the consolidated interim nancial statements were derived from the Groups management accounts and have not been audited. (c) Basis of measurement The nancial statements are presented in Renminbi (RMB), which is the functional currency of the Groups major operating subsidiaries, rounded to the nearest thousand. The nancial statements are prepared on the historical cost basis, except for the redeemable convertible preference shares which are stated at fair value as explained in note 25(c)(ii) to the interim nancial statements. (d) Use of estimates and judgement The preparation of the nancial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSs that have a signicant effect on the nancial statements and major sources of estimation uncertainty are discussed in note 29.



2

SIGNIFICANT ACCOUNTING POLICIES continued(e) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the nancial and operating policies of an entity so as to obtain benets from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the nancial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealized prots arising from intra-group transactions are eliminated in full in preparing the nancial statements. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment. (f) Goodwill Goodwill represents the excess of the cost of a business combination over the Groups interest in the net fair value of the acquirees identiable assets, liabilities and contingent liabilities. Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benet from the synergies of the combination and is tested annually for impairment (note 2(j)). Any excess of the Groups interest in the net fair value of the acquirees identiable assets, liabilities and contingent liabilities over the cost of a business combination is recognized immediately in the income statement. On disposal of a cash-generating unit, any attributable amount of purchased goodwill is included in the calculation of the prot or loss on disposal.



2

SIGNIFICANT ACCOUNTING POLICIES continued(g) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses (note 2(j)). Cost includes expenditure that is directly attributable to the acquisition of an asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when all of the activities necessary to prepare the assets for their intended use are substantially completed. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major component) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within other net income in the income statement. (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benets embodied within the part will ow to the Group and its cost can be measured reliably. The costs of the dayto-day servicing of property, plant and equipment are recognized in the income statement as incurred.



2

SIGNIFICANT ACCOUNTING POLICIES continued(g) Property, plant and equipment continued (iii) Depreciation Depreciation is recognized in the income statement on a straight-line basis after taking into account the estimated residual values over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives of property, plant and equipment are as follows: Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 50 years after the date of completion; Leasehold improvements are depreciated over the shorter of their estimated useful lives, being 10 years from the date of completion, and unexpired terms of the leases; and Equipment and machinery Ofce equipment, furniture and xtures Motor vehicles Computer software 5 to 10 5 to 10 5 3 years years years years

No depreciation is provided in respect of construction in progress until it is substantially completed and ready for its intended use. Upon completion and commissioning for operation, depreciation will be provided at the appropriate rates specied above. Depreciation methods, useful lives of assets and residual values, if any, are reviewed at each balance sheet date. (h) Intangible assets (other than goodwill) Expenditure on research activities is recognized as an expense in the period in which it is incurred. Expenditure on development activities is capitalized if the product or process is technically and commercially feasible and the Group has sufcient resources and the intention to complete development. Capitalized development costs are stated at cost less accumulated amortization and impairment losses (note 2(j)). Other development expenditure is recognized as an expense in the period in which it is incurred.



2

SIGNIFICANT ACCOUNTING POLICIES continued(h) Intangible assets (other than goodwill) continued Intangible assets acquired by the Group are stated in the balance sheet at cost less accumulated amortization (where the estimated useful life is nite) and impairment losses (note 2(j)). Amortization of intangible assets with nite useful lives is charged to the income statement on a straight-line basis over the assets estimated useful lives. The following intangible assets with nite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows: Diabetes technology Diabetes license Trademark 17 years 17 years 35 months

Both the period and method of amortization are reviewed annually. (i) Leased assets An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specic asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. (i) Classication of assets leased to the Group Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classied as being held under nance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classied as operating leases. (ii) Operating lease charges Where the Group has the use of assets held under operating leases, payments made under the leases are charged to the income statement in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benets to be derived from the leased asset. Lease incentives received are recognized in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.



2

SIGNIFICANT ACCOUNTING POLICIES continued(i) Leased assets continued (ii) Operating lease charges continued The cost of acquiring land held under an operating lease is amortized on a straight-line basis over the period of the lease term. (j) Impairment of assets (i) Impairment of trade and other receivables Trade and other receivables that are stated at cost or amortized cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: signicant nancial difculty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other nancial reorganization; and signicant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, any impairment loss is determined and recognized as follows: For trade and other receivables and other nancial assets carried at cost, the impairment loss is measured as the difference between the carrying amount of the asset and the estimated future cash ows, discounted at the current market rate of return for a similar nancial asset where the effect of discounting is material.



2

SIGNIFICANT ACCOUNTING POLICIES continued(j) Impairment of assets continued (i) Impairment of trade and other receivables continued For trade and other receivables and other nancial assets carried at amortized cost, the impairment loss is measured as the difference between the assets carrying amount and the present value of estimated future cash ows, discounted at the nancial assets original effective interest rate (i.e. the effective interest rate computed at initial recognition of the asset), where the effect of discounting is material. This assessment is made collectively where nancial assets carried at amortized cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash ows for nancial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognized, the impairment loss is reversed through the income statement. A reversal of an impairment loss shall not result in the assets carrying amount exceeding that which would have been determined had no impairment loss been recognized in prior years. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognized in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satised that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognized in the income statement.



2

SIGNIFICANT ACCOUNTING POLICIES continued(j) Impairment of assets continued (ii) Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased: xed assets; intangible assets; goodwill; and investments in subsidiaries.

If any such indication exists, the assets recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment. Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the asset. Where an asset that does not generate cash inows largely independent of those from other assets the recoverable amount is determined for the smallest group of assets that generates cash inows independently (i.e. a cash-generating unit). Recognition of impairment losses An impairment loss is recognized in the income statement if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated rst to reduce the carrying amount of any goodwill allocated to the cash generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.



2

SIGNIFICANT ACCOUNTING POLICIES continued(j) Impairment of assets continued (ii) Impairment of other assets continued Reversals of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to the income statement in the period in which the reversals are recognized. (k) Inventories Inventories are carried at the lower of cost and net realizable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. (l) Trade and other receivables Trade and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (note 2(j)), except where the receivables are interest-free loans made to related parties without any xed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.



2

SIGNIFICANT ACCOUNTING POLICIES continued(m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other nancial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignicant risk of changes in value, having been within three months of maturity at acquisition. (n) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between the amount initially recognized and redemption value being recognized in the income statement over the period of the borrowings, together with any interest and fees payable, using the effective interest method. (o) Preference share capital Preference share capital is classied as equity if it is non-redeemable, or redeemable only at the Companys option, and any dividends are discretionary. Dividends on preference share capital classied as equity are recognized as distributions within equity. Preference share capital is classied as a liability if it is redeemable on a specic date or at the option of the shareholders, or if dividend payments are not discretionary. Preference share capital classied as a liability is recognized in accordance with the Groups policy for interest-bearing borrowings set out in note 2(n), except when the preference share capital is initially designated as a nancial liability at fair value through prot or loss, in which case the preference share capital is initially recognized at fair value, and at each balance sheet date, the change in fair value on remeasurement is recognized immediately in the income statement as nance costs. Dividends on preference share capital classied as a liability are recognized on an accruals basis in the income statement as part of nance costs. (p) Trade and other payables Trade and other payables are initially recognized at fair value. Trade and other payables are thereafter stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.



2

SIGNIFICANT ACCOUNTING POLICIES continued(q) Employee benets (i) Short term employee benets and contributions to dened contribution retirement plans Salaries, annual bonuses, paid annual leave, contributions to dened contribution retirement plans and the cost of non-monetary benets are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. (ii) Share-based payments The fair value of share options granted to employees is recognized as an employee cost with a corresponding increase in a share-based compensation capital reserve within equity. The fair value is measured at grant date using the binomial option pricing model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest. This accounting policy also applies to share options granted to outside consultants as those consultants provide personal services similar to services provided by an employee. During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognized in prior years is charged/credited to the income statement in the period of review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the share-based compensation capital reserve. On vesting date, the amount recognized as an expense is adjusted to reect the actual number of share options that vest (with a corresponding adjustment to the sharebased compensation capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Companys shares. The equity amount is recognized in the share-based compensation capital reserve until either the option is exercised (in which case it is transferred to share premium) or the vested option expires or is forfeited (in which case it is released directly to retained earnings). (iii) Termination benets Termination benets are recognized when, and only when, the Group demonstrably commits itself to terminate employment or to provide benets as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.



2

SIGNIFICANT ACCOUNTING POLICIES continued(r) Income tax Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in the income statement except to the extent that they relate to items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for nancial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets, to the extent that it is probable that future taxable prots will be available against which the asset can be utilized, are recognized. Future taxable prots that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilized. The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable prot (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.



2

SIGNIFICANT ACCOUNTING POLICIES continued(r) Income tax continued The amount of deferred tax recognized is measured based on the expected manner of realization or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufcient taxable prots will be available to allow the related tax benet to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufcient taxable prots will b

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